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Talking GHG: Practical insights on measuring scope 1 emissions · PwC's accounting podcast

• 0:00
  SPEAKER_03: Thought leadership from PWC's National Office.
• 0:07
  SPEAKER_01: At the end of the day, we're still talking about accounting.
• 0:10
  SPEAKER_01: We just the subject of accounting changes.
• 0:12
  SPEAKER_01: Now we're talking about accounting and reporting of GEG emissions.
• 0:15
  SPEAKER_01: And those all these lessons learned that all your accountants can have learned over the last few decades, the lesson's pretty much the same, right?
• 0:23
  SPEAKER_01: The learning is pretty much the same.
• 0:25
  SPEAKER_01: You should follow the same rules, the same kind of a principles, because it's still accounting.
• 0:30
  SPEAKER_02: Hello.
• 0:31
  SPEAKER_02: Today we're back talking ESG, continuing our series, Breaking Down the Building Blocks of Greenhouse Gas, also known as GHG Emissions Reporting.
• 0:40
  SPEAKER_02: In today's episode, we'll focus on step four, the first part, which is measuring scope one emissions.
• 0:47
  SPEAKER_02: This is PWC's Accounting Podcast.
• 0:55
  SPEAKER_02: I'm Heather Horn, and thanks so much for joining us today.
• 0:58
  SPEAKER_02: As we mentioned at the start of the series, there's several building blocks of GHG reporting.
• 1:04
  SPEAKER_02: Our discussion today continues those building blocks with the measurement of GHG emissions, starting with scope one, and we'll cover scope two and scope three and episodes to follow.
• 1:14
  SPEAKER_02: In today's episode, we covered topics like what are scope one emissions and what data is needed to measure them, what estimates are used, and what's the timing.
• 1:24
  SPEAKER_02: Back with me today, I'm happy to welcome Marchin Lewinsky, national office partner, who also leads our global technical working group focused on the GHG.
• 1:32
  SPEAKER_02: And joining us for the first time on this podcast is Chris Osterman, a director in PwCC's sustainability practice specializing in GHG emissions.
• 1:41
  SPEAKER_02: Both Marchin and Chris are in the market every day working with clients on measuring emissions.
• 1:46
  SPEAKER_02: And you'll see some of their expertise come through in today's episode.
• 1:50
  SPEAKER_02: Wherever you fall on your GHG journey, you're sure to take something away from today's discussion.
• 1:56
  SPEAKER_02: With that, here's my conversation with March and Chris.
• 2:00
  SPEAKER_02: Marchin and Chris, welcome to the podcast.
• 2:02
  SPEAKER_02: So nice to have you guys on for the first of three episodes talking about uh GHG emissions measurement.
• 2:08
  SPEAKER_02: Uh, no surprise.
• 2:10
  SPEAKER_02: The first episode will talk about scope one, then we'll go into scope two for the next episode, and then we'll wrap things up with scope three.
• 2:16
  SPEAKER_02: It's definitely an important topic and one that whether a company is preparing required reporting or reporting voluntarily is going to come up in some way.
• 2:25
  SPEAKER_02: But perhaps, Marchin, just to kick things off, you can remind people what we mean when we say scope one emissions.
• 2:32
  SPEAKER_01: Yeah, so thank you for inviting me again, Heather.
• 2:35
  SPEAKER_01: So um let's jump right into definition.
• 2:37
  SPEAKER_01: So scope on scope one emissions are direct GGG emissions that occur from sources that are owned or controlled by the company.
• 2:45
  SPEAKER_01: So we're talking about companies' own operations.
• 2:48
  SPEAKER_01: So the emissions generated by assets, operations, or sources that are owned or within the company's organizational boundary.
• 2:55
  SPEAKER_01: So when we talked about the different um emission sources, right, we're talking about things like stationary or mobile combustion.
• 3:01
  SPEAKER_01: So emissions generated by um, you know, uh combustion of fuels and equipment such as boilers, furnaces, burners, or turbines, or even uh company vehicles, those are the mobile sources.
• 3:14
  SPEAKER_01: Then we're talking also about the process emissions, right?
• 3:17
  SPEAKER_01: So uh emissions from physical or chemical processes, such as CO2 from the calcination or uh cement manufacturing or uh catalytic cracking or much more complex uh chemical processes.
• 3:31
  SPEAKER_01: And last but not least, we're talking about fugitive emissions.
• 3:34
  SPEAKER_01: So those are intentional or unintentional releases of um GHG gases such as methane in pipelines or uh some gases being released uh by AC units, right?
• 3:47
  SPEAKER_01: So now those sources are gonna differ depending on the nature of operations.
• 3:51
  SPEAKER_01: So if you're talking about industries that have um uh like heavy processing or production activities, they're gonna have a more uh significant footprint from scope, scope one emissions associated with combustion of fossil fuels.
• 4:05
  SPEAKER_01: And then when you move to financial services or professional services, their profile will be lighter, and the primary source of emissions will be primarily scope two associated with electricity.
• 4:16
  SPEAKER_01: So it really depends what you do, and that's gonna um, you know, impact the type of sources of emissions you're gonna have.
• 4:23
  SPEAKER_02: Well, and I think, Martin, one thing that's key there is the fugitive emissions in particular, I think will surprise people because some of the places that they can emerge are so small.
• 4:33
  SPEAKER_02: It can be things like joint seals, gaskets, you know, these very, very small or what would appear to be small, but then because of the nature of the gases or otherwise, those actually can be important in the measurement process.
• 4:47
  SPEAKER_01: Yes, they can.
• 4:48
  SPEAKER_01: And um, some of sometimes we don't even think about it.
• 4:50
  SPEAKER_01: So the simple fact that every office or every house, or most of the offices and houses, they have AC units.
• 4:56
  SPEAKER_01: I mean, the amount of G emissions released uh from the the cooling liquids in there, it's really staggering when you think about this.
• 5:04
  SPEAKER_01: When you think how much of those uh of those liquids are being evaporating every year and they generate GEG emissions, like as I like I never realized.
• 5:14
  SPEAKER_01: When you start reading the the labels on AC units and they give you what's the percentage of of emissions generation, it just blows your mind, in my opinion.
• 5:22
  SPEAKER_02: Well, and also I think the fact you said almost every house has AC might be biased from your Houston location.
• 5:29
  SPEAKER_02: It's not always the case in other parts of the country, including Los Angeles, but nonetheless, the point is still fair.
• 5:35
  SPEAKER_01: Exactly.
• 5:35
  SPEAKER_01: Okay, yes, I'm uh I am a little bit biased from that perspective.
• 5:38
  SPEAKER_01: I can't survive with AC or nor any of my neighbors.
• 5:41
  SPEAKER_02: All right.
• 5:42
  SPEAKER_02: So before we go on to that sort of next step in the process, I think a key point here is identifying all the sources of scope one emissions.
• 5:51
  SPEAKER_02: And I guess Chris, just curious from your perspective, what you're seeing in practice in terms of some of the better practices for companies in terms of making sure that they're identifying all of these different sources, including the fugitive or the process emissions.
• 6:07
  SPEAKER_00: So completeness is very important when generating your uh GHG inventory, whether it's completeness of your own activities or completeness in your value chain, which we'll talk about later.
• 6:16
  SPEAKER_00: I think one of the biggest challenges of what we were just talking about is some of these more obscure emission points, like the fugitive emissions or the process related emissions, are hard to measure.
• 6:26
  SPEAKER_00: A lot of the time it comes off of either an estimation or an indirect style of equation to estimate that that release, and you lose some of that accuracy behind it.
• 6:37
  SPEAKER_00: But it is important to make an overall inventory of not only of your emissions, but your overall equipment and your assets so that you can get a complete picture.
• 6:45
  SPEAKER_02: All right.
• 6:45
  SPEAKER_02: So again, this isn't a podcast about identification of GHG sources, although that might be a good uh topic for a follow-on episode.
• 6:53
  SPEAKER_02: But assuming I have gone through this process and I have identified a complete listing of my GHG emissions, then March and sticking with you, what is the next step?
• 7:03
  SPEAKER_01: Well, so the next step is to select the measurement approach.
• 7:06
  SPEAKER_01: Uh and I think Chris alluded to this a little bit, but in general, we see two different types of, you know, uh or different ways to how to uh measure emissions, direct ways and indirect methods, right?
• 7:17
  SPEAKER_01: Direct ways involve usually the um uh technologies that they're referred to as a continuous emission monitoring systems that basically uh measure continuously concentration of CO2 or various other GHG gases uh directly at the source, right?
• 7:34
  SPEAKER_01: Those are less common, those are complex and more cost prohibitive techniques, and they cannot be applied for every source, right?
• 7:42
  SPEAKER_01: So, second method and more common method is uh indirect measurement, right?
• 7:45
  SPEAKER_01: We're talking about actually essentially instead of measuring emissions, we're talking about calculating emissions or estimating emissions.
• 7:52
  SPEAKER_01: And it is being done with a very common uh formula, which involves um required activity data, required emission factors, and global warming potential.
• 8:03
  SPEAKER_01: So, formula is activity data is multiplied by uh emission factors and multiplied by global warming potential.
• 8:11
  SPEAKER_01: As a result, uh companies achieve uh CO2 equivalent of various GHG gases.
• 8:17
  SPEAKER_01: And this is by far the most common uh methodology.
• 8:21
  SPEAKER_01: It's less cost prohibitive.
• 8:23
  SPEAKER_01: And um, when you look at today's state of emissions reporting, most of our clients are using this indirect methodology.
• 8:31
  SPEAKER_02: All right, and I want to come back to that because I know there's some uh question around direct versus indirect, and in addition, uh for those listeners who are wondering or don't fully understand these emissions factors and the global warming potentials, no worries.
• 8:46
  SPEAKER_02: We're going to get to that a bit more later in the podcast.
• 8:49
  SPEAKER_02: But before we keep going, Marchin, in the first few episodes of this series, we spent time with Kelsey talking about the various different frameworks, required reporting frameworks, and may what may be required for reporting of GHG emissions.
• 9:03
  SPEAKER_02: And I definitely encourage our listeners to go back and listen to those episodes for more of a background.
• 9:09
  SPEAKER_02: But before we get further into measurement today, can you just give a quick reminder of what's required?
• 9:15
  SPEAKER_01: Yeah, so depending on a framework, right?
• 9:17
  SPEAKER_01: Each framework might have a slightly different approach to measurement of emissions.
• 9:21
  SPEAKER_01: But in general, and I want to make sure you're gonna you're not gonna jump in, uh jump in and say that I'm uh simplifying.
• 9:29
  SPEAKER_01: But in general, right, a lot of these uh frameworks in one way or another rely on GHG protocol.
• 9:35
  SPEAKER_01: So for example, when you look at uh when you look at ESRSs, it requires use of GHG protocol for measurement unless it specifically conflicts with uh uh explicit guidance of ESRS.
• 9:46
  SPEAKER_01: ISSB has a similar requirement, you know, requires use of GHG protocol unless it's conflicts uh with a guidance in ISSB.
• 9:54
  SPEAKER_01: It also permits an entity to use another method, if required, by a regulator or exchange.
• 10:00
  SPEAKER_01: And uh ISSB is slightly unique because it has a little bit more detail on various um uh measurement methodology in uh appendix B in there as compared to ESRS, but in general, they those methodologies are also fairly similar to what GHG protocol would allow you to do.
• 10:15
  SPEAKER_01: This SEC has the biggest flexibility.
• 10:18
  SPEAKER_01: It gives you the flexibility what standard to use to calculate uh and measure emissions, but you have to disclose what you uh what standard you're using um to measure.
• 10:28
  SPEAKER_01: And California, um uh both California bills require use of GHG protocol.
• 10:35
  SPEAKER_02: Yes, although I'll jump in there and clarify a bit that uh California 253, which requires reporting in accordance with the GHG protocol, obviously does require the GHG protocol.
• 10:45
  SPEAKER_02: California Senate Bill 261, which requires reporting in accordance with TCFD, or an equivalent framework, which actually could include the IFRS sustainability disclosure standards, also uh references the GHG protocol.
• 11:00
  SPEAKER_02: However, TCFD, similar to the ISSB, actually allows uh use of a jurisdictional method.
• 11:07
  SPEAKER_02: And for our listeners' benefit, Martin is grinning at me.
• 11:10
  SPEAKER_01: So I am not grinning, I'm smiling because I knew you're gonna find something where I simplified a little bit too much.
• 11:16
  SPEAKER_01: I appreciate this clarification, and it's obviously very accurate.
• 11:19
  SPEAKER_02: All right.
• 11:20
  SPEAKER_02: And obviously, also even with my clarification, this is still a simplification.
• 11:24
  SPEAKER_02: So definitely encourage people to listen to those other episodes and to check out the guidance.
• 11:28
  SPEAKER_02: But I think that's enough for now.
• 11:31
  SPEAKER_02: So let's jump in then to the purpose of today's podcast, the real purpose, to talk about some of the things you need to think about when you're measuring emissions.
• 11:39
  SPEAKER_02: And specifically, probably a good starting point, Chris, is I think there is often where companies will think, oh, I should automatically try to go to direct measurement.
• 11:49
  SPEAKER_02: But there may be cases that actually indirect measurement is more appropriate.
• 11:52
  SPEAKER_02: So can you kind of talk about the factors companies should consider when they're selecting a measurement approach?
• 11:58
  SPEAKER_00: Guidance would state that you should select the most precise method for measuring GHG emissions available to the reporter.
• 12:05
  SPEAKER_00: Oftentimes, if in the in a space, a regulatory space where a company may have to report to the EPA based on their already their emissions profile for other purposes, they may have access to direct read instrumentation.
• 12:17
  SPEAKER_00: Marchina brought up a SEMS system, a continual emissions monitoring system.
• 12:22
  SPEAKER_00: That would provide more precise information than, let's say, an indirect method.
• 12:27
  SPEAKER_00: But we have to acknowledge that not all reporters will have access to those direct read instruments.
• 12:32
  SPEAKER_00: The most common way of reporting for reporters is going to be that indirect method where it's activity data coming from their utility invoices on a monthly basis, multiplied by an emission factor, and then the global warming potential.
• 12:44
  SPEAKER_02: All right.
• 12:45
  SPEAKER_02: So then, Martin, what are some of the considerations from your perspective when you're thinking about this sort of direct versus indirect?
• 12:53
  SPEAKER_01: Well, uh, as as Chris mentioned, so while direct techniques uh could be presumed to yield the most precise result, that's not always the case, not for every source.
• 13:01
  SPEAKER_01: Those uh, as Chris mentioned, SEMS technologies are available for some sources of emissions, but I think listeners should realize that there's a lot of sources that either there's no technology or existing technology would not yield very precise results, right?
• 13:17
  SPEAKER_01: So the things that companies have to consider is like what is the source, what is the specific regulatory requirements, like for example, some uh reporters in heavy meeting industries that report to local environmental agencies like EPA might be required to use SEMS for some of the sources, but not for the others.
• 13:34
  SPEAKER_01: So those this is part of a consideration that every company has to think about.
• 13:38
  SPEAKER_01: Another element is what is the existing industry practice, right?
• 13:42
  SPEAKER_01: Because some of those techniques may yield differences in outcomes, right?
• 13:47
  SPEAKER_01: So you want to also consider what is the industry practice, what your peers are doing to ensure the best comparability of reporting numbers with your peers or industry, right?
• 13:56
  SPEAKER_01: Cost is not a you know uh insignificant element to that component, too, right?
• 14:01
  SPEAKER_01: Uh a lot of these direct measurement techniques might be a little bit more costly than indirect methods.
• 14:06
  SPEAKER_01: So, you know, all in, I we think, as Chris mentioned, the the probably the most prevalent measurement technique is indirect methodology when companies are actually calculating emissions using the formula that I mentioned before.
• 14:19
  SPEAKER_01: And then the companies are focusing primarily about the accuracy and measurement of input data that is the first element in our formula, right?
• 14:27
  SPEAKER_01: So, which could be anything, could be measurement of actual consumption of fuel, right?
• 14:32
  SPEAKER_01: Or could be, you know, uh use of invoices from utility providers who provide that information to a company.
• 14:39
  SPEAKER_01: So the focus is more on measurement of input data as opposed to the emissions uh itself.
• 14:44
  SPEAKER_00: I think something else to point out that's important here is a topic we touched on earlier is about completeness.
• 14:50
  SPEAKER_00: And uh industries that do have the advantage of a direct read monitoring system or a SEMS, it won't capture all the data at the site.
• 14:58
  SPEAKER_00: So a SEMS is going to be on the biggest stack or the most significant polluter at a site, but it wouldn't capture the offices, the mobile emissions, the other buildings that are not on that SEM system.
• 15:07
  SPEAKER_00: So even folks that do have the ability to get that direct read information may still need to incorporate some indirect into their overall complete measurement of that site.
• 15:16
  SPEAKER_02: All right.
• 15:16
  SPEAKER_02: And then let me ask, um, we mentioned briefly before fugitive emissions and also process emissions.
• 15:22
  SPEAKER_02: Any unique challenges companies should be thinking about when it comes to those types of emissions?
• 15:28
  SPEAKER_00: Process emissions is a is a great thing to talk about.
• 15:30
  SPEAKER_00: So we talked about the advantages of direct read versus indirect.
• 15:34
  SPEAKER_00: And a lot of times with process-related emissions, direct reads just not available.
• 15:39
  SPEAKER_00: It's going to be a mass balance or a user-generated uh piece of information about run hours and an emission rate that occurs with run hours.
• 15:47
  SPEAKER_00: It's a very difficult thing to measure because it's usually based off of a knowledge of a chemical process that occurs or an activity that's happening.
• 15:55
  SPEAKER_00: Fugitive emissions are also very similar, very difficult to measure how that small piece of gas may be getting released over the a long period of time.
• 16:06
  SPEAKER_00: Uh it's a very challenging thing for reporters to measure.
• 16:09
  SPEAKER_00: And you see that this space is there's a lot of estimation used to capture this information.
• 16:15
  SPEAKER_02: All right, that's helpful.
• 16:16
  SPEAKER_02: And so definitely, I think for the purposes of the rest of this podcast, we'll focus in on companies that are using indirect measurement and talk about some of the factors to consider when using that formula.
• 16:28
  SPEAKER_02: I think for most of our listeners that are using the continuous emissions monitoring systems, they are well familiar with this and you know have years of reporting experience or otherwise.
• 16:38
  SPEAKER_02: So they may have some unique challenges, but let's let's talk to the broader audience right now.
• 16:44
  SPEAKER_02: So if we go back to our formula, if we think about it, we started with activity data multiplied by emissions factors, multiplied by global warming potentials, and we'll go through each of those in more detail.
• 16:55
  SPEAKER_02: But as Marchin just talked about, the activity data is a great starting point.
• 17:00
  SPEAKER_02: And if you start wrong there, you have no chance with the rest of this.
• 17:05
  SPEAKER_02: So, what are some of the things, Chris, when you're seeing uh companies collect activity data, what are some of the considerations?
• 17:12
  SPEAKER_00: Consistency is the first thing that comes to my mind.
• 17:15
  SPEAKER_00: So when you think about collection of data, you're gonna collect it from the same invoice every month from that same company.
• 17:22
  SPEAKER_00: If you are doing a direct read of a of a meter, you're going to collect it at the same time every day or every week or whatever your frequency is, so that you get a consistent unit of measure and a consistent application of data.
• 17:35
  SPEAKER_00: I will say that if for direct read instruments also, calibration is an important part of that.
• 17:40
  SPEAKER_00: If you have a meter that needs to be calibrated, you have to keep those records up to date.
• 17:46
  SPEAKER_00: You have to keep your folks trained on how to use it is an important part, especially when you come to the when the auditor comes knocking and wants to see that the backup data behind how that data is is generated.
• 17:56
  SPEAKER_01: Yeah, and I think you know the other thing to consider is obviously which I mentioned before, the method how you're going to be collecting data depends on, you know, the size of the entity, the industry you're in, and availability.
• 18:07
  SPEAKER_01: So, like going back to to Chris' example, meters, for example.
• 18:10
  SPEAKER_01: Smaller companies might not have meters on every type of equipment that they have, right?
• 18:15
  SPEAKER_01: Oftentimes they only have utility invoices.
• 18:19
  SPEAKER_01: As opposed to the bigger companies, they might have specific meters of fuel going through their through the different types of equipment, which might yield more precise amount of uh emissions per type of equipment.
• 18:31
  SPEAKER_01: But as at the end of the day, you really have to consider what's available to you, what is the size of your company, right?
• 18:38
  SPEAKER_01: And make sure, as Chris mentioned, the consistency is really important in this space.
• 18:45
  SPEAKER_02: Yeah, I guess March, and maybe a follow-up question there, though, is obviously consistency is important and companies need to be providing disclosure of some of this information and where they're getting information.
• 18:57
  SPEAKER_02: But on the other hand, I think as companies have really focused in more on their GHG emissions reporting and continue to improve their processes, there may be cases that company identifies there actually maybe is a better source of information, or maybe someplace where they were estimating missing data or otherwise now, you know, they have the ability maybe to get that data.
• 19:19
  SPEAKER_02: So, how do you think about that in a year-over-year audit where there is, I'm gonna use the word improvement for this purpose?
• 19:26
  SPEAKER_02: You know, how do you counsel your clients on that?
• 19:29
  SPEAKER_01: Well, it it oftentimes depends on uh what is the nature of the improvement and how material difference it yields, right?
• 19:35
  SPEAKER_01: So when you look at the guidance from GHG protocol, it requires, you know, uh recalculating historical data if you have any improvements in calculation methodologies.
• 19:46
  SPEAKER_01: In a practical sense, oftentimes historically, you were not using some sort of data because it just didn't exist, right?
• 19:53
  SPEAKER_01: So, you know, when we see in practice what companies do, when as they improve over time, starting you start using the new data sources that yield more precise results, we advise clients to disclose the fact, right?
• 20:07
  SPEAKER_01: But oftentimes it's not really to, you know, even you know possible to say what would be the effect on prior uh previously reported emissions.
• 20:15
  SPEAKER_01: So it's uh it's all about disclosures.
• 20:17
  SPEAKER_01: And in real life, historically, what I when I work with the clients, usually those kind of uh year-over-year differences from those uh different calculation uh techniques are not that material, but obviously they can accumulate over time.
• 20:30
  SPEAKER_02: So I guess one other question I know that companies grapple with, and we you've we touched on this briefly, is when there's missing data, then how do we see companies sort of trying to fill in what's missing and what are some of the ramifications of that?
• 20:45
  SPEAKER_01: Yeah, so um it depends what type of data you know the companies are missing.
• 20:49
  SPEAKER_01: Like oftentimes they might be missing some data from some type of equipment.
• 20:53
  SPEAKER_01: So companies are estimating based on different types of uh uh equipment they might have, and they, you know, they have a detail for for let's say fuel consumptions.
• 21:02
  SPEAKER_01: Oftentimes you see companies might use some industry averages, right?
• 21:06
  SPEAKER_01: Uh, or um provide their manufacturer specifications.
• 21:10
  SPEAKER_01: So we do see a lot of uh estimations, but again, that primarily relates to we see it in industry which are more emission-intensive, um, and they have also additional type of uh emissions reporting requirements.
• 21:24
  SPEAKER_01: So, for example, uh US EPA, right?
• 21:26
  SPEAKER_01: You have to require report emissions based on uh on different types of equipment that if you have a and they're very prescriptive as to how you should be gathering the data.
• 21:36
  SPEAKER_01: So you might be required to estimate some gaps that you have.
• 21:40
  SPEAKER_01: But for non kind of less uh emissions intense, usually those kind of estimations of missing data we don't see it come into practice uh uh oftentimes, maybe with exception of vehicles.
• 21:52
  SPEAKER_01: I don't know, Chris, what do you see?
• 21:53
  SPEAKER_01: But we see sometimes companies might not track the you know uh fuel consumption for all the you know vehicles, so there might be.
• 22:00
  SPEAKER_01: Some estimation needed there.
• 22:02
  SPEAKER_00: Trevor Burrus, Jr.: I agree.
• 22:03
  SPEAKER_00: I think uh vehicles is a great spot where to highlight where we see a fair amount of estimation because the EPA factor requires two pieces of data to be uh reported for to gather the emissions.
• 22:14
  SPEAKER_00: You need the gallons of fuel consumed and the distance traveled.
• 22:19
  SPEAKER_00: You may not have both of those points, so you may have to estimate one off of the other to get a complete picture.
• 22:24
  SPEAKER_00: I will say that over time also we have seen these um estimation policies really evolve at the reporting companies, where we see uh a method to backfill maybe one or two months missing is a different policy than if we're missing the whole year or six months, or maybe a different triggering factor in that estimation policy.
• 22:42
  SPEAKER_02: All right, that's helpful.
• 22:43
  SPEAKER_02: All right, so we said there's three parts to our formula, and we spent a lot of time talking about activity data.
• 22:48
  SPEAKER_02: So why don't we move on then to emission factors and probably first need to explain what emission factor is and then talk about some of the considerations in selecting them.
• 22:58
  SPEAKER_01: Uh okay.
• 22:59
  SPEAKER_01: So uh first of all, I agree it's emissions factors is a very important part of that equation and also challenging area.
• 23:05
  SPEAKER_01: So, what is emission factor?
• 23:06
  SPEAKER_01: So, emission factor represents the quantity of GEGG emissions released per unit of specific emissions generating activity, right?
• 23:14
  SPEAKER_01: So, we're usually talking about um those factors are expressed as the weight of pollutant divided by unit of weight, volume, distance, travel, or duration of activity emitting the uh pollutant.
• 23:26
  SPEAKER_01: So we're going back to uh activity data, right?
• 23:28
  SPEAKER_01: So um the selecting this emission factor is very important, right?
• 23:33
  SPEAKER_01: Uh because what you have to consider, because the the selection of emissions factors can make a difference in the final outcome of your calculations.
• 23:41
  SPEAKER_01: First of all, um, you know, you have to fully understand what's the type of activity, right?
• 23:47
  SPEAKER_01: Because your emission factor is kind of a generally linked to the type of activity and emission source that you have.
• 23:52
  SPEAKER_01: Uh, what is the geographical location of your activity?
• 23:55
  SPEAKER_01: Because the emissions factors could differ depending in different parts of the of the globe.
• 24:00
  SPEAKER_01: Sometimes, you know, um clients kind of may be tending to use one standardized emission factor database for the entire globe.
• 24:07
  SPEAKER_01: But you know, when you have operations in different countries, the emissions factors can then differ significantly.
• 24:14
  SPEAKER_01: For example, in some countries, they might have a much um higher standard as it relates to the vehicles or cars driving on roads, right?
• 24:23
  SPEAKER_01: They have to meet specific emission regulations.
• 24:26
  SPEAKER_01: So if you and versus the other countries which do not have them, they might be using cars which pollute more.
• 24:31
  SPEAKER_01: So using one generic global uh emission factor for all your operations might show you a distorted view of what your actual um carbon footprint is.
• 24:40
  SPEAKER_01: The same industrial processes, right?
• 24:42
  SPEAKER_01: Some countries might uh might have much kind of outdated technologies which are more polluting more than other countries.
• 24:49
  SPEAKER_01: So it's really important to not only match your emission factors to type of activity, but also consider geographical locations of your of your assets or operations when you're making those selections.
• 25:01
  SPEAKER_02: Well, and I think I guess that goes back to activity data that we also need to then make sure the activity data is measured at a granular enough level that you're able to then match to the emissions factor.
• 25:14
  SPEAKER_01: Yes, that's that's correct, because you know, combustion of of fuel.
• 25:18
  SPEAKER_01: The first of all, we're talking about different fuels.
• 25:20
  SPEAKER_01: So you have to know what fuel is combusting, and they have different profiles.
• 25:23
  SPEAKER_01: You know, combusting natural gas versus diesel, right?
• 25:26
  SPEAKER_01: Those are like totally different emission profiles, right?
• 25:29
  SPEAKER_01: Um, second of all, you know, uh combusting fuel uh in different sources can also result in different emission profiles.
• 25:37
  SPEAKER_01: So you're absolutely right.
• 25:38
  SPEAKER_01: It's critical to have a disaggregated data on a on a detailed level and then match emission factors specific to those activity data that you have available.
• 25:49
  SPEAKER_02: So then, Chris, if I'm a company looking now for emissions factors, where are you know, what are some of the typical sources that companies should use?
• 25:58
  SPEAKER_00: First and foremost, I think companies should pick publicly available, reputable sources for their emission factors that uh will yield a high confidence in the in the overall data process.
• 26:08
  SPEAKER_00: Uh, some some of those can include the US EPA, um, the International Energy Agency, which is IEA for short, uh, the Department of Environment, Food and Rural Affairs, DEFRA are some of the most common ones we see.
• 26:21
  SPEAKER_00: And they are for different parts of the globe, which is an important part for what Martin was just saying.
• 26:26
  SPEAKER_00: Another fuel that comes to my mind first is natural gas.
• 26:29
  SPEAKER_00: So natural gas emission factors may be based on a high heating value or a low heating value, and that can result in a very different emissions profile if you don't pick the right factor.
• 26:38
  SPEAKER_02: And then what about I know that some companies may use an approach that's other than one of these published factors.
• 26:44
  SPEAKER_02: So, what can you share about that?
• 26:46
  SPEAKER_00: Disclosure would be my favorite word for that, would be to, if you're going to use a user-generated factor or even something from your own internal knowledge of your process, disclose to the user how you got there and how you're going to continue to around that process.
• 27:03
  SPEAKER_00: Something else I want to point out in this, uh, as we start to think about going from regular from voluntary to regulatory, the uh release of emission factors may have an effect on how someone can report annually.
• 27:17
  SPEAKER_00: Historically, the US EPA releases their emission factors in mid to late April.
• 27:23
  SPEAKER_00: Your your annual reporting may already be due at that point prior to that.
• 27:27
  SPEAKER_00: So there can be a change coming forward in how we manage emission factors.
• 27:30
  SPEAKER_01: Well, and and Heather, I think another thing which is important there for everybody to understand those publicly available emission factors, what they essentially represent.
• 27:39
  SPEAKER_01: This is kind of average industry data, right?
• 27:41
  SPEAKER_01: Or country data.
• 27:42
  SPEAKER_01: They they are calculated based on your average profile within the region uh that they that you have your operations and specific to different types of uh you know emissions um generating activities, right?
• 27:55
  SPEAKER_01: So some companies might be required by regulators or uh might want to do themselves, use other methodologies to calculate more precise emission factors specific to their activity.
• 28:07
  SPEAKER_01: What we see is oftentimes, again, coming back to more uh emission-intense uh industries, um whereby either regulators or themselves might be tending to calculate these factors for themselves.
• 28:22
  SPEAKER_01: And for combustion, for example, we see the fuel sampling and analysis is one of the methodologies that those companies can be using.
• 28:28
  SPEAKER_01: So basically, they're calculating the you know um the emissions associated with specific fuel that they're burning uh at their facilities, right?
• 28:37
  SPEAKER_01: Which might be different than you know, generic emission factors associated with with fuels combusted uh in the country.
• 28:44
  SPEAKER_01: So companies might be performing this analysis to determine specific heating value, carbon content of of the fuel that that they're combusting, to get more precise emissions um emissions factors, essentially, right?
• 28:57
  SPEAKER_01: I know it's it's kind of a coin term, but uh that that's what you that's what you sometimes can see.
• 29:03
  SPEAKER_01: But again, I wanna I I'm not gonna suggest that every single reporter has to be calculating their own emissions factors because oftentimes those publicly available emission factors, especially in in the more developed countries, they are really good representations of what emissions you know uh profile you have.
• 29:20
  SPEAKER_01: So it's nothing wrong with using this, but obviously that's one of the considerations the company could be making.
• 29:25
  SPEAKER_02: Yeah, and I think we use the terminology in our sustainability reporting guide, tailored emissions factors for these ones that are company specific.
• 29:33
  SPEAKER_02: And so companies that are thinking about that may want to check out that discussion.
• 29:37
  SPEAKER_02: And I do think, you know, one of the things to March and we've talked about before is that there are circumstances where it would be helpful or important to use those because um it it would maybe be more reflective of your own emissions compared to if there's some difference in your operations compared to sort of the average for uh your region.
• 29:58
  SPEAKER_01: Yeah, absolutely.
• 29:59
  SPEAKER_02: So then what are some of the considerations that companies should be using when they're picking emissions factors?
• 30:05
  SPEAKER_01: Well, so Heather, I think we already, you know, the big part we already covered before, whereby you need to know what emission uh uh activity you have, what emission sources you have.
• 30:14
  SPEAKER_01: But then, you know, I would generally start the first and foremost, you should apply the emission factors, emission factor sources consistently, right?
• 30:22
  SPEAKER_01: And update, as Chris mentioned, those factors are being updated so though the the um the factor publishing uh organizations that oftentimes update those emission factors routinely.
• 30:34
  SPEAKER_01: So you should be following that and updating for in your own calculations as well.
• 30:39
  SPEAKER_01: Um if you cannot, companies cannot use the consistent approach, clearly they should disclose why, right?
• 30:44
  SPEAKER_01: What causes the changes when they change emission factor source from year to year?
• 30:48
  SPEAKER_01: Generally, you know, it should be applied mainly for the reasons in increasing the accuracy of the calculations, but definitely the the strong disclosures are um encouraged, right?
• 31:00
  SPEAKER_01: Uh and uh and uh so those are kind of the main things, but then things like is your factor or factor source industry specific?
• 31:08
  SPEAKER_01: So are your peers in your industry using the same factors and the same source?
• 31:12
  SPEAKER_01: Because that comparability is really uh really important, right?
• 31:16
  SPEAKER_01: So um again, those are high few high-level things to think about, um, especially for the companies that operate, you know, in um various geographical locations.
• 31:27
  SPEAKER_01: I think that task is is very important.
• 31:30
  SPEAKER_02: Yeah, and I think it's interesting, and Chris alluded to this earlier, this idea that, you know, that depending on the timing of when the emissions factors are released, that may impact your ability to use different emission factors.
• 31:43
  SPEAKER_02: But I do think it's important to know that's not always the case that you would use the most recent, because, for example, if you were going to a prior period and you were, let's say, or for whatever reason are recalculating your 2022 emissions, it is probably better to use an emissions factor related to 2022 versus using some factor that was released in the middle of 2024.
• 32:06
  SPEAKER_02: So again, I think what's key here is for a company to really pick the most representative factor that's available, considering the period, the region, and otherwise.
• 32:16
  SPEAKER_02: And March, and I was thinking we really saw the impact of this when we were doing some um calcul, like sample calculations, and you could see some differences during um some of the COVID periods and the non-COVID periods.
• 32:30
  SPEAKER_02: And so it small differences really then can have a big impact on the calculation.
• 32:35
  SPEAKER_01: Yeah, and and again, it all depends on the emission source, right?
• 32:38
  SPEAKER_01: So when we're talking about things like combustion and fuels, the general heating content or or uh emission generating ability of different types of fuels is not that significantly changing from year to year, right?
• 32:51
  SPEAKER_01: But um, you know, when you talk about electricity generation, which is scope two, and we're gonna be talking about this in separate episodes, that could change quite significantly because the you know uh uh a lot of companies making investments in renewable sources, you can see changes from year to year, what type of sources are being deployed in a grid, so you can have a significant um difference.
• 33:12
  SPEAKER_01: And I know it's scope two, but that that's kind of a theory.
• 33:17
  SPEAKER_02: So then let's go to the last part of the question, which is the global warming potentials.
• 33:21
  SPEAKER_02: And I think this is another case where maybe we need to start by explaining what is a GWP, and then let's talk about some of the sources and then we can get into consideration.
• 33:30
  SPEAKER_02: So, Chris, can you start things off by explaining to us what a global warming potential represents and then where companies should be looking?
• 33:37
  SPEAKER_00: Certainly.
• 33:37
  SPEAKER_00: So global warming potential is is the tool that we use to equate everything back to a unit of carbon dioxide.
• 33:43
  SPEAKER_00: So it's a it's a weight that is given to a specific uh air pollutant release that is then to relate it back to carbon so that when we do our reporting, the standard unit of measure for reporting is CO2E, carbon dioxide equivalent.
• 33:57
  SPEAKER_00: That global warming potential allows you to get to that reporting element.
• 34:02
  SPEAKER_00: Sources of global warming potentials would come from your uh IPCC is the publisher of the assessment reports.
• 34:10
  SPEAKER_00: They are numbered.
• 34:11
  SPEAKER_00: The most recent assessment report that is available now is AR6, assessment report six, which provides global warming potentials for the different constituent gases that are commonly uh released in connection with GHG data reporting.
• 34:26
  SPEAKER_00: It is important to note, too, that the IPCC publishes a number of different uh time frames for which GWPs are available.
• 34:34
  SPEAKER_00: The industry standard for reporting GHG data is the 100-year global warming potential impact.
• 34:40
  SPEAKER_02: All right, so one of the key things here um is that in thinking about global warming potentials, it is highly important because there's such a huge range of um the conversion factors because some gases really contribute more to global warming than others.
• 34:54
  SPEAKER_02: So, Marchin, I guess uh what can you share just to give people some sense for the differences there?
• 35:01
  SPEAKER_01: Yeah, I mean, Heather, it's a it's a great point, right?
• 35:03
  SPEAKER_01: Because not all the seven you know GHG gases have equal uh global warming potential.
• 35:08
  SPEAKER_01: So if you want to, as Chris mentioned, everything gets reported in CO2E.
• 35:13
  SPEAKER_01: So if you want to convert emissions in all separate gases, we really have to use the correct uh global warming potential.
• 35:21
  SPEAKER_01: And um, the consequence of using wrong GWP uh factor could be really, really dire.
• 35:29
  SPEAKER_01: So, as an example, obviously CO2 GWP is one, so you don't have to convert, it's one to one.
• 35:34
  SPEAKER_01: But you start going down the list, like methane, for example, it's like 26 or 228, depending on which you know AR you're using, right?
• 35:42
  SPEAKER_01: Because they're changing, changing slightly.
• 35:44
  SPEAKER_01: So one unit of uh or like one pound of methane uh emitted, right, equals 27 to 28 pounds of CO2 in your calculation.
• 35:55
  SPEAKER_01: Once you go to, for example, nitrous oxide, it's 200 over 270.
• 36:00
  SPEAKER_01: Some of these we're talking about 14,000 um uh conversions.
• 36:05
  SPEAKER_01: So using the correct one is really, really important because the difference can be um uh can be really significant.
• 36:12
  SPEAKER_01: And when you look at a you know this uh distribution of gases, obviously methane is the one which kind of uh has a we have a lot of methane uh releases and methane within uh GHG uh emissions.
• 36:24
  SPEAKER_01: So that one is like 26, 27.
• 36:26
  SPEAKER_01: So it's really important to get the right number right.
• 36:29
  SPEAKER_00: And this ties back to what we talked about at the beginning of the podcast, where there was the different categories of emissions and fugitive emissions, though they may be small and hard to measure, they can have a really big impact based on the global warming potentials, as Martin was just saying.
• 36:42
  SPEAKER_00: So SF6 is a is a one of those seven gases that's called out, and that can have a 23,000 times the intensity of a of a unit of carbon.
• 36:51
  SPEAKER_00: So it's though they are very small, those fugitive emissions, they can have a grand impact very quickly.
• 36:56
  SPEAKER_02: Well, and I think the key point there as well is that, for example, if you're looking at the hydrofluorocarbons, there's a huge range, a difference depending on which hydrofluorocarbon you're talking about.
• 37:08
  SPEAKER_02: And so again, for a company, the more they can identify specifically which uh type is being emitted, uh, the better in terms of an accuracy perspective.
• 37:20
  SPEAKER_01: Yes.
• 37:21
  SPEAKER_01: Uh and there's one thing which I, as we were talking, I was thinking, uh, we when we talked about the proper selection of uh emission factors and proper selection of GWPs, the one thing that um I didn't mention in my speech before is understanding how the emission factors were calculated.
• 37:37
  SPEAKER_01: I know it sounds like a simple, but some of those emission factors that are published, they already include uh GWP uh conversions in them.
• 37:45
  SPEAKER_01: So it's also important going back to Chris when we're selecting the source of publishing emission factors to understand whether those sources include the GWP uh conversion in the factor itself versus the sources they do not, because you don't want to use the factor that already uh is converted using the GWP and then convert it using the GWP at the end.
• 38:08
  SPEAKER_01: That could create gigantic difference.
• 38:10
  SPEAKER_01: So again, it it really goes back to you know, there's no really one uh answer fits all in terms of what source of emission factors to use and what calculation techniques, but really what is key is to understand, you know, what is your emissions data, what is included in emissions factors calculations, what gases you you you have.
• 38:30
  SPEAKER_01: So accuracy of all and understanding of all the inputs in the calculations, I think, is critical in emissions reporting worlds.
• 38:38
  SPEAKER_00: I I completely agree.
• 38:39
  SPEAKER_00: Reading your emission factor set and knowing the data that's in there is very important.
• 38:44
  SPEAKER_00: Um, some of the data, even though it does show the individual gases, the unit of measure may be kilograms of CO2E, even though it's for methane.
• 38:52
  SPEAKER_00: So if you're going to change the inherent global warming potential that's in the published factor set, you need to know what was there, how to back it out, and then reapply your new factor set and not double apply global warming potentials.
• 39:04
  SPEAKER_01: Which Hedda, you know, you you usually ask me a question: what do you see as a potential issue and most common issues that we see in practice?
• 39:11
  SPEAKER_02: Jumping ahead.
• 39:11
  SPEAKER_02: Okay, well, I no, you can go ahead.
• 39:13
  SPEAKER_01: Well, so this is this is this is kind of an interesting element because usually when we see issues, it's with those small things, right?
• 39:20
  SPEAKER_01: Selection of inappropriate emission factors, or using, you know, looking using the wrong conversion units, right?
• 39:28
  SPEAKER_01: Pounds versus kilograms, right?
• 39:29
  SPEAKER_01: So it's really important to understand every element of that measurement because quite frankly, the most mistakes we see in practice are totally preventable if somebody fully understood what they were looking at and paying attention to what emission factor sources are being pulled, what are the conventional or measurement units, and so on and so forth.
• 39:47
  SPEAKER_00: I think consistency and conversion factors is a very important thing to consider for scope one emissions, especially because you can get units of consumption data or activity data that's in a volume, let's say hundreds of cubic feet of natural gas is on your utility invoice, you have to consistently convert that to a unit of energy that matches your emission factor throughout your organization.
• 40:08
  SPEAKER_00: If you have the individual sites that are doing it at a different level, you may get a different answer every time.
• 40:14
  SPEAKER_02: All right, very helpful.
• 40:15
  SPEAKER_02: One thing uh before we go on, though, from the global warming potentials, I want to make sure we make the point is that for both reporting under the IFRS sustainability disclosure standards and for reporting under ESRS, companies are required to use the most recent IPCC values.
• 40:32
  SPEAKER_02: So that would be in AR6.
• 40:35
  SPEAKER_02: Uh the ISSB standards do provide a specific call out that if you have these sort of combined factors, the combined emission factors that uh were already calculated to include global warming potentials and they include amounts from AR-5, you're not required to change those.
• 40:51
  SPEAKER_02: But otherwise, it's very important for companies uh reporting in accordance with those standards to use that AR6 report.
• 40:58
  SPEAKER_02: And again, many of the other places you may look, for example, if you go look in the GHG protocol itself for these factors, or otherwise, you may be still getting AR5 values, or some places even AR4.
• 41:10
  SPEAKER_02: So highly recommend that you check out the IPCC actual report.
• 41:14
  SPEAKER_02: And there's some links to that in the sustainability reporting guide.
• 41:18
  SPEAKER_01: And understand how your emission factors are calculated.
• 41:21
  SPEAKER_02: Yes, you already said that once, but it's good to repeat again.
• 41:24
  SPEAKER_02: Obviously, this is a store point, so something that definitely Chris and Marchin have both seen in practice where companies did not understand that.
• 41:31
  SPEAKER_02: So again, you jumped ahead, Marchin.
• 41:33
  SPEAKER_02: So hopefully you saved uh some advice for the very end.
• 41:37
  SPEAKER_02: But you guys know I think those are the sort of key points we wanted to talk about today related to scope one measurement.
• 41:42
  SPEAKER_02: But maybe just to wrap things up, let's uh give some practical advice from working with clients.
• 41:47
  SPEAKER_02: So, Chris, I'll start with you first.
• 41:49
  SPEAKER_00: I think my my biggest takeaway from reporting any GHG emission, not just scope one, is I said up earlier, consistency in in your application of data and and factors and clarity in your disclosure.
• 42:03
  SPEAKER_02: Martin?
• 42:04
  SPEAKER_01: Well, understanding, not just I don't know I said twice or three times, you need to understand emission factors, but also you need to understand your operations, right?
• 42:12
  SPEAKER_01: Um oftentimes uh emissions are being calculated on a corporate level, right?
• 42:16
  SPEAKER_01: And it's very easy to make a wrong presumption around that, you know, what's available and how the data is being report, reported from your various kind of uh locations, right?
• 42:26
  SPEAKER_01: And again, very often uh the issue that we see is with uh you know passing on the data from various locations to corporate office, a lack of understanding on both ends.
• 42:36
  SPEAKER_01: The the subsidiaries might of my lack the understanding of what the data is being used for, and corporate office my my lack the understanding of what um you know what data they're getting.
• 42:47
  SPEAKER_01: So as we as we said before, every element of a calculation formula is critical.
• 42:53
  SPEAKER_01: So full understanding of the data you're looking at and making the wise choices, what calculation methodologies and techniques at what level you want to do, I think is critical here.
• 43:02
  SPEAKER_02: Yeah, it's interesting, March.
• 43:04
  SPEAKER_02: I was just reflecting when you were speaking that when you and I started working together, it must be more than 15 years ago, uh, we were working on commodity derivatives at that time.
• 43:14
  SPEAKER_02: And the one of the key things in dealing with commodity derivatives or other commodity contracts was meeting with the business, understanding the underlying sort of purpose of those contracts, understanding the underlying power plants, and you know, making sure that your accounting aligned with the actual business purpose and otherwise.
• 43:33
  SPEAKER_02: And it's exactly the same thing here.
• 43:35
  SPEAKER_02: You can't sit in your accounting uh Ivory Tower and expect to get this all right because you really do need to be talking to the people in the field that are gathering the data and otherwise to really get this right.
• 43:47
  SPEAKER_01: Oh, yeah.
• 43:47
  SPEAKER_01: And I had, as you were saying, I had a really nice close-up thing because as at the end of the day, we're still talking about accounting.
• 43:54
  SPEAKER_01: We just the subject of accounting changes.
• 43:56
  SPEAKER_01: Now we're talking about accounting and reporting of GEG emissions and those practical um uh theories, not practical theories, that's wrong, wrong saying.
• 44:05
  SPEAKER_01: Those all these lessons learned that that all your accountants can learn over the last few decades, the lessons pretty much the same, right?
• 44:13
  SPEAKER_01: The the learning is pr pretty much the same.
• 44:15
  SPEAKER_01: You should follow the same rules, the same kind of principles, because it's still accounting.
• 44:19
  SPEAKER_01: I know it's cliche, but I'm not sure.
• 44:21
  SPEAKER_02: No, actually now it's almost like that should be the close-out of our whole series.
• 44:25
  SPEAKER_02: But for our listeners, tune in again next week because we'll be talking about scope too.
• 44:29
  SPEAKER_02: So, Chris Marchant, as always, such a pleasure for talking uh to you.
• 44:33
  SPEAKER_02: Thanks so much for joining me today.
• 44:34
  SPEAKER_00: Thank you.
• 44:35
  SPEAKER_00: Thank you.
• 44:37
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• 44:39
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• 44:42
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• 44:59
  SPEAKER_02: From Thought Leadership at PwC, I'm Heather Horn.
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